LFP050 – Is P2P FX All It’s Cracked Up To Be? With John Booth Founder of Midpoint

Did you know that the world’s first P2P FX firm was formed in 1998 and is listed on the Toronto Venture Exchange and cross-listed on the Frankfurt Stock Exchange?

No, me neither.

Midpoint, formed in 1998, describe themselves as the world’s first authentic peer-to-peer (‘P2P’) international foreign currency and payments platform, have a US patent on its FX deal matching process and have won several awards for this including being the “Best P2P Currency Matching Platform” in 2015.

Zooming up to the bigger picture of P2P – y’all know about P2P – one of the mainstays of the fintech revolution.

Or so you might think.

In P2P borrowing and lending there has been a lot of displacement of the “P” by institutional capital – so less P2P than it was.

In Insurance Fintech P2P is far more spoken about than done.

In FX – well it’s always been something of an insiders’ secret that the much-vaunted P2P FX model – beloved of unicorn valuations – is more talked about than done.

In LFP023 Philippe Gelis CEO of B2B Fintech FX players Kantox spoke about how “pure P2P” in the FinTech fx markets rapidly became “best execution” and that P2P never really worked.

The most well-known B2C FX Fintech is Transferwise. In a recent article Nick England founder of VFX and a 15yr veteran of the FX markets said that Transferwise was – “smoke and mirrors” – and that their main innovation was around marketing.

It was something of a surprise to social media Fintechers that Transferwise (as far as I and others saw) chose not to reply to these claims. The Memo reached out to Transferwise to ask how much is P2P and how much is dealt outside and they declined to reply. So after all, like the banks, they do have “something to hide”.

Another advertising slogan bites the dust.

Against this bakckground, for some time I have been keeping my eye out for a firm that does P2P FX to come on the show and honestly and openly discuss the pros and cons of Fintech FX.

As Midpoint are listed they are rather more familiar than non-listed firms with the need to tell the truth about business rather than hype up some PR and spin.

Discussions in this episode include: – using capital market solutions to preserve the environment 🙂

– sustainable timber [well it’s more interesting than Fintech :-D]

– the decline of the crusading vibe of Fintech in favour of the usual corporate meme of a tiny few making a lot (out of potential flotations)

– “many of the models that were originally pitched as pure P2P are being exposed as the Emperor having no clothes”

– “all markets exist in a social context” – how the rules are set are vital to how markets evolve and behave

– the simple idea of P2P FX is that you and I want to do opposite transactions right now and we can just switch our needs and cut out the middleman. However this is almost never the case (of simultaneous equal and opposite trades)

– the long and fascinating history of P2P FX back into the 1990s and the dotcom boom

– what happened to the original implementation of P2P FX – “pioneers get the arrows, the settlers get the land”

– the nature of FX being that everyone is a simultaneous buyer and seller [unlike lending/borrowing P2P]

– multi-way netting being a further differentiator from other P2P Fintech sectors and also the core technology of Midpoint’s US patent

– banks as – loosely put – actually conducting de facto P2P business between all the parties (just taking a slice out of the middle) – they could do this not as principal but as agent and it wouldn’t change the nature of the business [principal/trading positions being another story entirely]

– the post-2008 weakness of Banks preventing them just crushing all opposition (as happened with the original P2P FX implementation)

– the challenges of P2P FX:

that P2P FX takes time to match (and so rates move),

there are many slices done (so it’s harder in many cases to audit the rates)

the need to have a fallback “deal with the market” to ensure that the trade gets closed out in a reasonable time frame

you don’t know up-front what rate you will pay for the trade

– two key questions to ask any P2P FX are:

“What percentage of your execution is P2P?”

“Over what timescale do you guarantee my deal is executed?”

– Midpoint guarantee that the execution will take place within 24 hours

– the difference of being a listed company in terms of how one approaches marketing spend and technology spend in comparison to a VC-backed firm; Midpoint expanding far more carefully (albeit having passed $100m in volumes)

– the widespread disclosures of being a public firm

– Midpoint’s white-labelled solution and in re an integration with the Xero accounting package

– Midpoint is live in 17 currencies right now

– users can become owners as Midpoint are listed – cf the usual case where users can only invest after the post-success phase